Source: Insurance Age | 01 Feb 2016
Categories: Broker, Insurer, Regulation
Tags: FCA | Fines
First ever fine for a person for undertaking FCA regulated activities without approval.
The Financial Conduct Authority (FCA) has fined five individuals and two firms a total of £15.5m, in addition to banning four of those individuals, for significant integrity and competence failings.
The FCA fined Shay Reches £1.05m following an investigation with the Prudential Regulation Authority into the validity of solicitors’ professional indemnity insurance for over 1,300 firms.
Reches, a director at Coverall Worldwide with responsibility for a managing general agent called Aderia UK, has also agreed to pay £13.13m to three insurers.
The regulator said he conducted regulated activities, which were central to setting up and operating insurance schemes, despite not being approved by the FCA to do so.
The FCA highlighted that the sanction is noteworthy as it is the first time that it has fined a person for undertaking FCA regulated activities without approval.
By doing so he recklessly directed payments of insurance premiums to parties other than the insurers and reinsurers responsible for paying claims, and increased the risk that policyholders’ claims would not be paid.
The regulator said the misconduct contributed to the failure of several insurance schemes as well as to three insurers going into administration.
As a result, the Financial Services Compensation Scheme (the FSCS) has had to pay substantial claims, totalling £12.7m as at the end of 2015.
Reches has also been prohibited by the FCA from performing any function in relation to any regulated activity.
Action was also taken against Colin McIntosh, Millburn Insurance Company Limited, Coverall, Robert Bygrave, Andrea Sadler, Wayne Redgrave and Bar Professions Limited.
Coverall was fined fined £36,800 by the regulator and had its authorisation cancelled.
The firm has been sanctioned for recklessly failing to mitigate the risks to policyholders arising from the contracts entered into by its appointed representative Aderia.
It also failed to take reasonable care to ensure that it established and implemented adequate controls over its appointed representative and failed to arrange adequate protection for client money.
Robert Bygrave and Andrea Sadler, both directors at Coverall, have been fined £37,400 and £18,700 respectively.
Bygrave had responsibility for managing Aderia’s finances while Adler was responsible for looking after the appointed representative’s day-to-day operations.
Both have been sanctioned for not appropriately managing the business for which they were responsible.
In Bygrave’s case that related to failing to take reasonable steps to adequately inform himself about the way insurance premiums received as client money should be treated.
The FCA also said Bygrave allowed premiums to be paid to third parties as instructed by Reches, an unapproved person, rather than to the insurer.
Sadler failed to ensure that appropriate contractual arrangements were in place for insurance cover to be provided before signing agreements committing Aderia and insurers to offer that insurance cover.
She also failed to put in place appropriate systems and controls to prevent Reches from giving her instructions in relation to the regulated business, and allowing him to take lead roles in key negotiations and materially influencing business operations.
Bar, a specialist London-based insurance broker predominantly providing Solicitors’ PII, which is now in liquidation, was also publicly censured by the FCA.
Bar has been sanctioned for negligently failing to conduct adequate due diligence concerning insurance arrangements for policyholders and sending a letter to over 1,300 customers inducing them to enter into contracts of insurance on the basis of materially inaccurate and misleading information.
Wayne Redgrave, a broker, director and the controller at Bar, was £38,600 by the regulator.
He has been sanctioned for being personally responsible as director and the main decision maker at Bar for its failings including drafting and signing the letter that was sent to over 1,300 of Bar’s solicitor customers.
Colin McIntosh – the chief executive at Millburn and a director at Coverall, has been fined £51,600 by the FCA.
McIntosh has also had his FCA approval withdrawn, and been prohibited from performing any FCA controlled functions.
According to the FCA, McIntosh failed to deal with it in an open and cooperative way in his role at Millburn, and failed to take reasonable steps to ensure that the business of Coverall complied with the relevant requirements and standards of the regulatory system.
Lack of integrity
It added that McIntosh demonstrated a lack of integrity because he failed to mitigate the risks to potential Solicitors’ PII policyholders from contracts entered into by Aderia.
Millburn – a UK insurance company, which is now in administration, has been declared in default by the FSCS.
The FCA fined Millburn £1,137,500 for failing to deal with it in an open and cooperative way and disclose appropriately information in relation to Millburn of which the FCA would reasonably expect notice.
The watchdog detailed that this was in respect of Millburn’s responses to requests for information about a reinsurance treaty which it had seemingly entered into with Balva, the scope of which was outside of Millburn’s permission.
The FCA confirmed that as Millburn is in administration it will become a creditor of the firm. However, policyholder financial claims against Millburn will be given precedence over the FCA’s fine.
Mark Steward, director of enforcement and market oversight at the FCA, said: “This was a hugely complex case with the FCA liaising with over 20 regulators and agencies around the world.
“Mr Reches’ misconduct led to many solicitors and others being left without adequate insurance.”
Steward continued: “He treated policyholders’ funds and their interests with reckless indifference and his misconduct was facilitated by an absence of proper controls by key persons at important stages of the insurance process.
“The FCA has also taken action against those responsible for poor controls and oversight.”